You are on page 1of 49

Social Exclusion and Ethnic Groups: The Challenge to Economics

Glenn C. Loury, Boston University

(Forthcoming in The Annual World Bank Conference on Development Economics)
Abstract: This paper discusses the concept of social exclusion, with an eye to assessing the
utility of this concept in the study of ethnic and racial group inequality in the modern
nation state. A brief review of the literature and some methodological discussion are
offered. The paper then examines the case of race-based social exclusion in the United
States, by way of exemplifying how race and ethnicity can operate to inhibit full
participation of individuals in a societys economic life. The concept of social capital
referring to the role of non-market relations in aiding or impeding investments in human
skills is stressed. The paper concludes with a discussion of the legitimacy of race-based
remedies for the problem of exclusion.
Social division between groups defined in terms of race and ethnicityalong economic, cultural,
and political linesis a central feature of public life in nations throughout the world. I am of the
view that important features of this problem span geographic and political boundaries, and reflect
universal social dynamics. Accordingly, I believe that much can be learned from the
comparative study of such tensions and conflicts across national boundaries. It also seems clear
that inequality and conflict between social groups entails not only economic, but also, and
centrally, sociological and political factors.
The concept of social exclusion has gained wide currency in recent years. But is this
concept useful in studying racial and ethnic inequality? Social divisions between racial and
ethnic groupsalong economic, cultural, and political linesare a central feature of public life
throughout the world. The problem spans geographic and political boundaries and reflects
universal social dynamics. Accordingly, much can be learned from comparing such tensions
across national boundaries. Inequality and conflict between groups entail not just economic but
also, and centrally, sociological and political factors.

Morals and ethics play an essential role in this area. Indeed, a cursory review of the
recent literature on social exclusion reveals that normative matters are the primary concern of
those invoking this concept. But social exclusion is a loaded term. Indeed, use of the term can be
a political movea bid to define the debate in a way that favors progressive, inclusive, and
socially democratic policy. Concerns about the status of minorities, immigrants, women, the
unemployed, and indigenous peoples fit nicely into this school of thought. This observation is
not intended to signal a lack of sympathy for such political programs. A thorough analysis of the
concept of social exclusion simply requires that one attend to its rhetorical as well as its socialscientific dimension.
A Brief History of the Concept of Social Exclusion

Use of the term social exclusion arose in Europe in the wake of prolonged and large-scale
unemployment that provoked criticisms of welfare systems for failing to prevent poverty and for
hindering economic development. Silver (1994) stresses that economic restructuring in North
American and European countries since the mid-1970s has given rise to such terms as social
exclusion, new poverty, and the underclass to describe the consequent negative effects on the
more vulnerable populations in these countries. Such phenomena also intensified the debate over
the adequacy of universal social protection policies and fueled growing concern about the
distributive fairness of employment and income patterns. Used first in France (Yepez-delCastillo 1994), the concept spread quickly to the United Kingdom and throughout the European
Social exclusion theorists are concerned with the dissolution of social bonds, the
incomplete extension of social rights and protections to all groups, and the links between the idea

of exclusion and more conventional understandings of inequality. They draw on theories of

poverty, inequality, and disadvantage. In this context policies to aid the excluded have focused
on subsidizing jobs and wages, providing housing, and responding to urbanization. The value
added of these discussions derives from their focus on the multifaceted nature of deprivation and
on analysis of the mechanisms and institutions that function to exclude people (de Haan 1998).
The concept of social exclusion has encouraged scholars to consider simultaneously the
economic, social, and political dimensions of deprivation. As Bhalla and Lapeyre (1997) stress,
this concept encompasses the notion of poverty, broadly defined, but is more general in that it
explicitly emphasizes povertys relational as well as the distributional aspects.
The focus on more sociological and institutional aspects of poverty among social
exclusion scholars is evident in work on Europe. Evans (1998) explores the institutional basis of
social exclusion in Europe, emphasizing the different theoretical approaches to social exclusion
in France and the United Kingdom. Buck and Harloe (1998) explore the processes underlying
social exclusion in London, arguing that it is best seen in terms of functioning of the labor
market, access to state redistribution, and access to communal resources of reciprocity and
mutual support. Similarly, Sen (1997) discusses the impact of various inequalities on individuals,
focusing on the effect of unemployment on social exclusion, family crises, and lower skills,
motivation, and political activity. He also discusses how massive unemployment may intensify
racial and gender inequality and emphasizes that these costs will not be adequately reflected in
market prices.
Although the theory and concept of social exclusion originated in developed countries,
they have been applied extensively to developing countries. (The International Institute for
Labour Studies has played a key role in introducing the idea of social exclusion into the

developing country debate.) Properly done, such diffusion should attend closely to the contextdependent definitions and meanings involved with an idea like social exclusion. It certainly does
not mean the same thing in every culture (de Haan 1998).
Rodgers, Gore, and Figueiredo (1995) is a representative collection applying the concept
of social exclusion to developing countries. The papers in the volume look at both conceptual
and empirical issues, covering such topics as social change in Africa, the exclusion of poor and
indigenous peoples in Latin America, and patterns of inequality in India, Mexico, Russia, and
elsewhere. The papers in Burki, Aiyer, and Hommes (1998), the proceedings of a 1996 World
Bank conference on development in Latin America and the Caribbean, focus on poverty,
inequality, and social exclusion in the region. Topics include rural poverty, the conditions of
poor children, labor reform and job creation, the uneven coverage of social services, urban
violence and the role of social capital, and the impoverishment of indigenous peoples in Ecuador.
Thorne (1999) explores the social exclusion of indigenous peoples in Brazil and the impact on
their physical and social environments of World Banksponsored development projects.

Limits of Social Science to Address Social Exclusion

Many approaches have been offered to mitigate social exclusion. Those that draw on the science
of economics, however, have some shortcomings that should be noted. Observing that these
shortcomings exist, of course, is not to dismiss economic science as being irrelevant to the
problem. Rather, it is one way of urging some caution and humility among us economist as we
apply our analytical tools to the profound moral and political problems that are raised by this

phenomenon. In this section I suggest some reasons for proceeding cautiously, by reflecting on
factors that may limit the successful application of scientific ideas.
Is Good Science Good Enough?

That good science might prove to be an antidote to group hatred has been a hope of
progressive social observers throughout the modern age. The story goes something like this.
Antagonism toward a particular race may involve supposedly objective claims about the nature
of people of that raceabout their moral deficiencies or intellectual inferiority, for example.
These claims can be subjected to scientific scrutiny and refuted. Confronted with these scientific
arguments, rational people might then alter the beliefs on which their racial enmity rests. In this
way sound science, a value-neutral enterprise, can produce the ethically desirable result of
undermining racial antagonism by replacing prejudice and stereotypes with data and rigorous
This story is plausible, with ample historical precedent. It is only made more compelling
when one recalls how totalitarian political regimesparticularly the Nazishave used bad
science to justify their racist political programs. If science falls under the influence of a political
agenda and ceases to be an autonomous intellectual activityif it becomes bad sciencethen it
can abet the spread of racial hatred. Thus proper scientific argument can foster racial tolerance,
while the abuse of science can lead to disturbing results.
Yet these outcomes are by no means guaranteed. Whether science is good or bad depends
on its conformity with disciplines and methods that practitioners see as meeting their standards
of evidence and argument. This essentially technical matter has relatively little moral content. In
any event, scientific argument is a specialized discourse within a narrow community of

investigators governed by strict norms and disciplines. Indeed, it is an indication that a field has
matured as a science when its discourse takes on the quality of what might be called
sociolinguistic closure. Thomas Kuhn (1962) stressed just this point in his influential work, The
Structure of Scientific Revolutions.
On the other hand, hatred, enmity, antagonism, and conflict among racial groups are
universal cultural phenomena, observable through the ages and still prevalent today. This is so
despite the fact that science has more authority than ever before. In fact, although population
geneticists declare that there are no races in an objective, biological sense, the social and
political construct of race continues to reproduce itself across generations in many societies.
Racial identity is a stubborn reality, one that has survived the demise of the 19th century
anthropology from which it arose. So, as a cultural and historical matter, it seems safe to say that
racial hatred will not be vanquished by the steady march forward of scientific discovery.
What matters most for dispelling racial hatred is not what scientists say to each other, but
what the general public understands them to have said. To gain insight into the relationship
between scientific argument and persistent racial conflict, one needs to focus on broad cultural
appropriations of scientific understanding. Ultimately, the hope that science can dispel racial
enmity is grounded in the belief that the authority of science can be conferred on a particular
kind of cultural work, that good science can make people more tolerant of human difference,
more open-minded, less parochial, less nationalistic, less chauvinistic, less certain about
inherited cultural verities. Gauging the potential for scientific argument to have this influence
requires attending to the interpretive discourses through which the results of scientific work are
diffused into the larger culture. Unlike arguments within scientific communities, this crossboundary discourse is inherently, inevitably political. As such, whatever the quality of the

scientific work informing this interpretive discourse, there can be no certainty that preexisting
racist ideology will not contaminate that discourse.
Does this mean that the age-old conundrum of intergroup conflict is, at its base, a
problem for the humanities, not the sciences? True, humanistic inquiries are constrained by facts
about the world that only structured scientific inquiry can uncover. Quantitative magnitudes
cannot simply be set to whatever value one would like. But in the end, when we try to find ways
to dispel racial hatred, we are engaged in an enterprise of narration, interpretation, and moral
In this connection it is crucial to note that what we say about the way society works is
itself a social datum, powerfully influencing the workings of society. For example, capitalism is
superior to socialism may be true about a world inhabited by the kinds of people produced by
late 20th century capitalism, but it need not be a law of nature, true for all times and places. The
narrative rationalizations constructed by and for the inhabitants of our liberal, democratic,
capitalist states partly serve to make that statement true. In this respect, the now much derided
Marxists are correct to insist that, while the consciousness of man determines his existence, it is
also true that the conditions of mans social existence help to determine his consciousness.
(Roemer [1981, pp. 53-54] provides a typical formulation of this doctrine.)
When our formal methods in the social sciences seduce us into believing that we are
engaged in a value-neutral enterpriseone with a clear separation between subject and object, as
in physics or chemistryI believe we are gravely misled. Formal rigor cannot substitute for
taking responsibility for the inescapable normative dimensions of our work.
This methodological point can be illustrated with an example from my own discipline,
economics, where the central metaphor is Adam Smiths unseen or invisible hand. The

preeminent modern exponent of this idea was Friedrich von Hayek, who introduced the notion of
spontaneous order to refer to the social products that emerge from human interaction but not
from human designthe order that knows no author. As Hayek put it, That the division of labor
has reached the extent which makes modern civilization possible we owe to the fact that it did
not have to be consciously created but that man tumbled on a method by which the division of
labor could be extended far beyond the limits within which it could have been planned. [Hayek
1994, p. 56] Spontaneous order thus refers to the unconscious collaboration of individuals
through the market leading to the solution of the problems of resource allocation that would have
to be consciously solved in a planned system.
Hayeks fundamental points, therefore, was that such a consciously planned solution is
impossible in practice, and our best course is to rely on spontaneous order. This is obviously a
deeply political claim. It can be profoundly persuasive as a description of many economic
situations. Yet, as the legal scholar Cass Sunstein (1996) has observed, for Hayek the economic
argument was less important than the moral one: spontaneous order promotes his ultimate
valuefreedom. We need not go far to see the significance of these ideas in our daily lives. Are
these scientific, philosophical, or religious claims? Are they amenable to refutation on the basis
of evidence? When we hear debates about the limits of the welfare state, we can discern this
Hayekian metaphor of spontaneous order, invoked by advocates who see this as a truth about
society established through the scientific study of history. Which is to say that it is not only
Marxists who fall prey to what Karl Popper (1957) called the historicists fallacy.

Is Economic Analysis Thorough Enough?

All this supports that point that economic science without serious political reflection is a
conceptually impoverished framework in which to debate social policy. In the particulars of
governing, the economists view of the world can be narrow and reductive. Policymaking
involves more than simply providing technical solutions to the problems of governance. It also
involves taking symbolic actions that express a peoples values and beliefs. And it is about doing
justice. As any good politician knows, a policys cost-benefit effect may pale next to this
communicative role. Yet what might be called the expressive content of public actionthe
message to the political community conveyed by the letter of a law, the behavior of a
bureaucracy, or the public utterances of a political leaderhas no place in conventional
economic models.
For example, criminals are punished not simply to deter crime but also to signal a politys
collective abhorrence of the offending act. Conversely, punishment is sometimes mitigated or
forgoneeven though that might blunt the deterrent effectto show mercy or do justice. In no
jurisdiction in the world does the political viability of capital punishment turn on whether it, in
fact, deters murder. The more compelling argument over the state-sanctioned killing of criminal
offenders begins by asking, What manner of people are we, who destroy human life in public
rituals of revenge? This most decidedly is not a question about incentives.
To take another example, the conservative drift of U.S. social welfare policy in recent
years was driven primarily by the desire of many Americans to state, unequivocally, what they
can rightly require of public assistance recipients. Whether we like it or not, for most people such
beliefsabout who deserves to be helped and how we should separate public from private
responsibilitieshave very little to do with analytical judgments. Indeed, even with experienced

analysts one often finds the influence running in the opposite directionfrom basic value
commitments to conclusions about cause and effect.
Conventional economic analysis has little to say about this kind of thing, starting as it
does from the assumption that individual preferences among alternative courses of action are
given and lie beyond the scope of respectable intellectual discussion. An alternative view,
however, takes the principal objective of policy to be altering individuals views about how to
live their lives. That is, the expressive content of public action can also serve a pedagogic
functionby showing citizens how to lead better lives, as individuals and together within the
political community. This too is a consideration missing from the economists conceptual toolkit.
But there is more than a conceptual poverty of economic discourse (and much other
social science). There is a moral impoverishment as well. This seems an important point to raise
in a discussion of social exclusion, which, as I have emphasized, unavoidably entails moral
concerns. The accounts of human behavior on which we social scientists rely are clinical and
abstract. The human beings in these accounts are soulless creaturesutility-maximizing buyers
and sellers, behaviorally conditioned violators of the law, genetically predisposed substance
abusers. This brand of social science propounds theories about human action that omit any
consideration of what most makes us humanour awareness of our mortality and our fitful,
uncertain, often unsuccessful attempts to give our brief lives meaning that transcends our
pitifully brief existences. This omission has left social scientists less equipped to prescribe
remedies for the most serious problems confronting our societies.
Consider an example. Much has been written by U.S. behavioral scientists in recent
decades about how parents discipline their children and about the consequences of such behavior
for the sociability of young people. Criminologists have argued that the regular provision of


modest positive and negative reinforcements for good and bad actions lowers the risk of
antisocial behavior as a child enters adolescence. Once allowed to develop, these antisocial
behaviors are alleged to be difficult to change. So, if the character-shaping tutelage of vigilant
parents is missing in early childhood, the young adult who emerges may turn out to be
This is a matter of no small policy significance because, in the most disadvantaged
quarters of many societies, millions of children grow to maturity in the absence of
conscientiously applied parental discipline. Yet many people in various civic institutions work in
the most marginal communities to turn these incorrigibles in a different direction. These
inspired activists confront young adults who did not receive proper nutrition in infancy, who
experienced insufficient verbal stimulation as toddlers, who never learned to internalize the
difference between right and wrong, and who have committed the kinds of acts that incorrigible,
undisciplined adolescents commit. Yet despite all that, many young people are considerably
aided by the activists interventions.
What is interesting to me as a social scientist is the antideterministic character of this way
of thinking. Most social science theories say, in effect, that material conditions mediated by
social institutions cause us to behave in a certain way. Yet surely it is more plausible to hold that
material and institutional givens can at best establish only a fairly wide range in which behavior
must lie and that specific actions in this range depend on factors of motivation, will, and
spiritthat is, on factors having to do with what a person takes to be the source of meaning in
life, with what animates that person at the deepest level.
If this is correct, then the crucial implication is that the behavior of freely choosing,
socially situated, spiritually endowed human beings will in some essential way be unpredictable,


even mysterious. For if human behavior is largely a consequence of what people understand to
be meaningful, then the social interaction and mutual stimulation that generate and sustain
patterns of belief in human communities become centrally important. But these processes of
persuasion, conformity, conversion, myth construction, and the like are open-ended. They are at
best only weakly constrained by material conditions.
That is, while what we believe about the transcendent powerfully shapes how we act in a
given situation, these beliefs are not a necessary consequence of our situation. We can always
agree to believe differently or more ferventlyparticularly if those with whom we are most
closely connected are undergoing a similar transformation. Religious revivals and reformations
can sweep through our ranks and change our collective view of the world almost overnight. We
can be moved to make enormous sacrifices on behalf of abstract goals. As former Czech
President Vaclav Havel has said, The essential aims of life are present naturally in every person.
In everyone there is some longing for humanitys rightful dignity, for moral integrity, for free
expression of being and a sense of transcendence over the world of existences. [Havel 1992, p.
I admit to being deeply moved by this fact about human experiencethat we are spiritual
creatures, generators of meaning, beings that must not and cannot live by bread alone. One can
readily see the power for goodand for illof communal organization acting through
collectivities that share understandings about the meaning of their lives. This all-too-human
search for meaning and significance often results in ethnic or racial solidarity and its
complementintergroup conflict and antagonism. Any social science that does not treat this
aspect of the human drama with utmost seriousness will fail to do justice to its subject of study
and to the national communities that look to it for advice on a host of social ills.


Race and Social Exclusion in the United States

I wish now to carry forward this discussion in the context of a particular example, namely that
having to do with race in the United States. I rely on this case because it is most familiar to
me, and permits me to speak with some specificity about the mechanism of exclusion and the
extent to which factors of race, ethnicity and identity are an important aspect of the problem. In
doing so, however, I want readers not to lose sight of the fact that similar processes are at work
in many other social contexts, both in the developing and the advanced, industrialized nations. I
see the value of the discussion to follow, then, as being suggestive of the more general dynamics
underlying the social exclusion phenomenon in many societies.
Broadening the Focus beyond Discrimination

The economic literature on discrimination tends to focus on the different treatment of

individualsbased on race, gender, or ethnicityin labor, credit, and consumer goods markets.
This is obviously a serious matter, and there is ample evidence in the United States and
elsewhere that such disparities are real and quantitatively important as a source of intergroup
economic inequalities (Modood and others 1997; Wilson 1996). Nevertheless, when considering
ethnic group inequality, economists should look beyond what happens in markets.
Of course, economists tend to focus on how markets work or fail. Economic theory
suggests that discrimination based on gender or racial identity should be arbitraged away in
markets of competitive sellers, employers, and lenders. But such discrimination is readily
observed in society, and this anomaly attracts attention. Critics of neoclassical economics seize
on it, and defenders of that orthodoxy seek to explain it away. Thus evidence that wage


differences between the races or sexes have declined, after controlling for worker productivity, is
supposed to vindicate the economists belief in market forces.
This way of approaching the problem is too narrow. With wages, for example, the usual
focus is on the demand side of the labor marketemployers either have a taste for
discrimination or use race as a proxy for unobserved variables that imply lower productivity for
minorities. The primary normative claim in this approach is that such discrimination is morally
offensive, a legitimate object of regulatory intervention, and a significant contributor to racial
and gender inequality. But implicit in this claim is the notion that if inequality were due to
supply-side differencesin the skills presented to employers by blacks and whites, for
examplethe resulting disparity would not raise the same moral issues or give a comparable
warrant for intervention. There is a comparable view in housing marketsthat residential
segregation induced by the discriminatory behavior of realtors is a bigger problem than
segregation that comes about because of the freely made decisions of market participants.
I propose a shift in emphasis. In the United States market discrimination against blacks
still exists, but such discrimination is not as significant an explanation for racial inequality as in
decades past. This calls into question the conventional wisdom on equal opportunity policythat
eliminating racial discrimination in markets will eventually resolve racial economic inequality.
Much evidence supports the view that the substantial gap in skills between blacks and whites is a
key factor accounting for racial inequality in the labor market. Yet this skills gap is itself the
result of social exclusion processes that deserve explicit study and policy remediation. The gap
reflects social and cultural factorsgeographic segregation, deleterious social norms and peer
influences, poor educationthat have a racial dimension (Cutler and Glaeser 1997; Akerlof


1997). Group inequality such as that between blacks and whites in the United States cannot be
fully understood, or remedied, with a focus on market discrimination alone.
There is a long history of justified concern that focusing less on employer discrimination
and more on skill differences could foster dangerous stereotypes and undermine arguments for
policies to narrow the racial wage gap. In the decade after U.S. antidiscrimination laws were
enacted in the 1960s, researchers like Wilson (1978) who began to find evidence of a decline in
labor market discrimination were sometimes criticized for giving aid and comfort to political
conservatives. But this reaction accepts the implicit normative assumption that racial inequality
based on skill disparities is not as important a moral problem, warranting as vigorous a corrective
intervention, as inequality based on wage discrimination in the labor market. That assumption is
not compellingand should be challenged.
The Importance of Social Networks

Economic analysis begins with a depersonalized agent who acts more or less independently to
make the best of the opportunities at hand. This way of thinking has been fruitful for economics,
but it cannot fully capture the ways that racial inequality persists over time. Individuals are
embedded in complex networks of affiliations: they are members of nuclear and extended
families, they belong to religious and linguistic groupings, they have ethnic and racial identities,
they are attached to particular localities. Each individual is socially situated, and ones location
within the network of social affiliations substantially affects ones access to various resources.
Opportunity travels along these social networks. Thus a newborn is severely handicapped
if its parents are uninterested in (or incapable of) fostering intellectual development in the first
years of life. A talented adolescent whose social peer group disdains the activities that must be


undertaken for that talent to flourish is at risk of not achieving his or her full potential. An
unemployed person without friends or relatives already at work in a certain industry may never
hear about the job opportunities available there. An individuals inherited social situation plays a
major role in determining economic success.
In earlier work I have suggested an extension of human capital theory designed to
provide a richer context in which to analyze group inequality (Loury 1977, 1981, 1987). This
theory builds on observations about the importance of family and community background to
individual achievement. A persons investment in productive skills depends on position in the
social structure, because imperfect capital markets for education loans necessitate reliance on
finance through personal ties, social externalities are mediated by residential location and peer
associations, and psychological processes shape a persons outlook on life. As a result familial
and communal resourcessocial and cultural capitalexplicitly influence the acquisition of
human capital. In this view an important part of racial inequality arises from the way that
geographic and social segregation along racial lines makes an individuals opportunities to
acquire skills depend on skill attainments by others in the same social group.
The literature offers fairly strong support for this view of the lagging economic position
of blacks in the United States. Akerlof (1997) provides a theoretical argument, supported by a
wealth of evidence from social anthropology, for the notion that concerns for status and
conformity are primary determinants of education attainment, childbearing, and law-breaking
behavior. Anderson (1990) provides an ethnographic account of life in inner-city Philadelphia,
where peer influences significantly constrain the acquisition of skills by adolescents. Waldinger
(1996), in a study of immigrant labor in New York City, concludes that poor blacks suffer less
from the racism of employers than from their lack of access to the ethnic networks through


which workers are recruited for jobs in construction and service industries. Cutler and Glaeser
(1997), comparing U.S. cities with varying concentrations of different races, find blacks to be
significantly disadvantaged by residential segregation. The authors estimate that a 13 percent
reduction in segregation would eliminate about one-third of the black-white gap in schooling,
employment, earnings, and unwed pregnancy rates. Mills and Lubuele (1997) argue that a central
problem for students of urban poverty is explaining why low income black residents actually or
potentially eligible for jobs that have moved to suburbs [have] not followed such jobs to the
suburbs. (p. 735)
All this suggests the inadequacy of seeing discrimination or antidiscrimination efforts
only within a market framework. Conventional economic discrimination against minority groups
is rarely the primary source of group disparities. Moreover, available methods for fighting such
discrimination have little power to reduce the economic gap between groups. Given the
information asymmetry between employers and enforcement agents, there are limits to how
aggressive antidiscrimination policy can be before significant efficiency costs arise (Coate and
Loury 1993a). If the concern is economic inequality between groups, then looking mainly
through the lens of wage and price discrimination is unlikely to bring the problem into focus.
In the United States there is another, more fundamental reason to broaden the discussion
of group inequality beyond market discrimination. In cities across the country and in rural areas
of the Old South the situation of the black underclass and, increasingly, of the black lower
working class, is bad and getting worse. This is certainly a race-related problem. But the plight
of the underclass should not be seen as another (albeit severe) instance of economic inequality,
American-styleconventional market discrimination is only a small part of it.


These black ghetto-dwellers are a people apart, susceptible to stereotyping, ridiculed for
their cultural styles, socially isolated, experiencing an internalized sense of helplessness and
despair, with limited access to communal networks of mutual assistance (Anderson 1990; Wilson
1996). Their purported criminality, sexual profligacy, and intellectual inadequacy are frequent
objects of public derision. They suffer a pariah status (Goffman 1963). This is social exclusion
with a vengeance. It does not require extraordinary powers of perception to see how this
degradation relates to the history of black-white race relations in the United States.
Here is where the implicit normative model that accompanies the emphasis on market
discrimination is most seriously flawed. Given social segregation along racial lines, the effects of
past discrimination can persist over time by adversely affecting the skills acquired by the
offspring of those discriminated against. Moreover, discrimination in one market can leave its
victim less well prepared to compete in another. Ethically, the cumulative impact of an act of
discriminationover time and across marketsshould be no less problematic than was the
original offense.
The U.S. civil rights struggle, which won for blacks the right to be free of discrimination,
failed to secure a national commitment to eradicating the effects of discrimination that had
already occurred. When those effects manifest themselves in patterns of behavior among poor
blacks that lead to seemingly self-imposed limits on their acquisition of skills, many observers
who think only in terms of market discrimination argue that society is not at fault. This is the
grain of truth in the insistence of some observers that, while overt racism was the problem in the
past, behavioral differences lie at the root of racial inequality in todays United States
(Thernstrom and Thernstrom 1997).


But the deeper truth is that, for quite some time, the communal experience of the
descendants of African slaves has been shaped by political, social, and economic institutions that
by any measure must be seen as oppressive. When we look at underclass culture in the U.S.
cities of today, we see a product of that oppressive history. In the face of the despair, violence,
and self-destructive behavior of these people, it is morally obtuse and scientifically nave to
argue, as some conservatives do, that if those people would just get their acts together we
would not have such a horrific problem. Yet for the same reason it is a mistake to argue, as some
liberals do, that the primary causes of continuing racial inequality are ongoing market
Significant market failures, having little to do with economic discrimination as
conventionally understood, play a powerful role in perpetuating racial inequality. Consider the
problem of residential segregation (Massey and Denton 1993). Compelling theoretical arguments
(Schelling 1978, ch. 4) and recent computer simulations (Wayner 1998) show that even a mild
desire among people to live near members of their own race can lead to a strikingly severe
degree of segregation. Adding class concerns to these models only strengthens their predictions
of geographic clustering. Moreover, residential location is not the only venue in which
segregation occurs. Linguists studying speech patterns in urban centers have uncovered strong
evidence of race and class separation (Labov 1982). Ethnic group differences in communication
styles seem to play an important role in accounting for the adverse labor market outcomes of
low-income blacks (Lang 1986; Cornell and Welch 1996; Charles 1997; Wilson 1996).
Even though social segregation and exclusion based on race and ethnicity may be a
natural result of nondiscriminatory market interactions, the consequences could still be morally
disturbing. And even if those consequences manifest themselves mainly on the supply side of the


labor market, a strong case could still be made for doing something about them. That case need
not be based solely on equity grounds. Indeed, once it is admitted that preferences and
investment in skills of market participants are influenced by social and psychological
externalities, the conventional results in welfare economics on the efficiency of market outcomes
are no longer generally valid.
As an example of a social externality, consider the dissonance associated with holding
values at some distance from ones peers. If groups help sustain norms, with individuals looking
to the apparent preferences of their peers to infer appropriate behavior, then there is a possibility
of multiple self-sustaining norms (Akerlof 1997). Generalizations about differences among
groups in attitudes toward work, family life, criminal participation, and the like may thus be
empirically correct but morally irrelevant. Moreover, with multiple self-sustaining norms, acting
to shift the norm can lead to Pareto improvements in welfare (Sunstein 1996).
A psychological externality can occur when individuals draw on their own encounters
with the market, and on the encounters of others to whom they are socially connected, to reach
conclusions about, say, the extent to which effort accounts for market rewardsas opposed to
ability or luck. In this scenario the degree to which an individual believes that bad personal
outcomes are due to inadequate personal effort can depend on the aggregate experience of
other members of the group. Self-fulfilling pessimism about the returns to effort for certain
activities, like academic pursuits, are possible in a model like this (Steele 1992).
I am not suggesting that these social and psychological externalities are the primary
explanation for racial inequality. But they are not implausible accounts of how social segregation
might support behavior patterns that lead to skill gaps between racial groups. Furthermore, these
scenarios (and others that could be sketched) suggest that policies directed at reducing skill gaps


might be just as morally required, and even more effective, than policies directed against such
market discrimination as may still exist.
Exclusion in the U.S. Inner City

Most social analysis of race in U.S. life goes on at a macroscopic level, citing the changing
population composition, the loss of jobs in core industries in central cities, and the incidence
among blacks and whites of various indicators of disadvantage. The perspective of these analyses
is aggregative and systemic, generalizing from broad patterns. University of Pennsylvania
sociologist Elijah Anderson (1990, 1999) takes a different approach, and his work is worthy of
close attention. His research method involves careful and extensive observation of the face-toface interactions of inhabitants of inner-city neighborhoods, with due attention to the larger
economic and political context in which these encounters occur. His work provides a participantobservers account of social life in a U.S. urban community mixed along racial and class lines.
This is ethnographic work in the fine tradition of William Whytes Street Corner Society (1943)
and Elliot Liebows Tallys Corner (1967). Surpassing these other works, however, Andersons
great achievement is to weave together the data of ethnographic observation with a coherent
theory of how people encounter each other in public places.
In Streetwise (1990) Anderson builds on the work of the great sociologist Erving
Goffmans The Presentation of Self in Everyday Life (1957). Anderson presents a theory
revolving around the problem of decoding that all social actors must solve when meeting
others in public (see, for example, the related work in economics of Cornell and Welch 1996).
One cannot be entirely certain of the character or intent of the other; assessments have to be
based on the processing of information gleaned from an examination of the visible behavior of


those being encountered. The context of the meetingtime of day, physical setting, whether the
individual is alone or in a group, and so onwill affect how these external clues are read. As an
encounter unfolds, communication between the parties, ranging from a meeting of eyes (or the
avoidance of same) to an exchange of greetings, permits further inferences to be drawn. Race
and ethnic identityoften easily and instantly ascertainable characteristicscan be expected to
play a large role in this game of inference. Social classas conveyed by dress, manner,
occupation, speechwill also be important. An individuals experience of the social
environment will be governed by how those encountered in public negotiate these meetings.
Anderson describes in elegant detail the rules of public etiquette, norms of mutual
expectation, conventions of deference, methods of self-protection, strategies of turf-claiming,
signals of intention, and deciphering of cues, mistakes, biases, bluffs, threats, and self-fulfilling
prophecies implicit in the interactions he observes. He identifies social roles, public routines, and
behavioral devices common to the encounters he chronicles. All these routines are key features
of how racial groups interact in the modern U.S. city.
More recently, Andersons (1999) work has focused on face-to-face social interactions in
a low-income, racially segregated African-American community. His book, The Code of the
Streets, presents the results of this investigation. The analysis relies heavily on the concept of
the streets, the social environment where people live and interact. These are poor
communitiesdilapidated, dirty, noisy, and unsafe. But there is a high degree of sociability: the
neighbors know each other, and people are often in the street. Most jobs are menial, with low
wages. Drugs are a major source of income. Welfare, aid from the state, is also important. Men,
especially in the roles of husbands and fathers, are scarce.


These are tough places. Money is in short supply. The games and scams that people play
can lure and ensnare those who are not streetwise. One boy may try to take anothers sneakers or
his jacket. Another boy may flaunt his gold chain, wearing it openly, daring someone to try to
take it as a way of signaling his toughness. There is an air of incivility, especially at night. Some
of the older residents are distressed by that, more committed to values of decency than are
many of the young. But their influence in setting the tone of the community seems to be waning.
There is what one might call, and this is my term, a moral ecology of the streets. One
of the most important insights from Andersons work is that ghetto neighborhoods are highly
heterogeneous places (for further evidence in this regard, see Newman 1999). There are people
of different generations, different family structures, different degrees of economic stability.
Clashes of values result from this heterogeneity. Street versus decent values is how
Anderson poses the opposition. There is a complex interaction or tension between these value
systems, especially for the young. Young men and women, boys and girls, want to be thought of
as hip, not socially lame. And yet, being hip may mean taking on street values.
Adolescent peer groups are crucial in Andersons account. Children sometimes raise
themselves. There are many single parents, and even when parents are married, they are working
and away from home much of the time. Children spend a lot of time on the street. They may be
more influenced by their peer group than by what goes on in the family, especially in families
driven by so-called street values. Nevertheless, there is a culture of decency, connected with
close, extended families: families where the work ethic is important, where getting ahead is
important, where religious influences remain. Parents are seen struggling for the hearts and
minds of their children as the tensions between decent and street values exert influence.


Role models of decency are in short supply. The old heads about whom Anderson
wrote Streetwise mature, stable and influential residents looked up to by the young are not as
important in these communities as they once may have been. The new role modelsyoung drug
dealersare increasingly influential, and the scarcity of work is taken to be central to this
transformation. As Anderson writes:
A vicious cycle has thus been formed. The hopelessness many young inner-city black men
and women feel, largely as a result of endemic joblessness and alienation, fuels the violence
they engage in. This violence then serves to confirm the negative feelings many whites and
some middle-class blacks harbor toward the ghetto poor, further legitimating the oppositional
culture and the code of the street for many alienated young blacks. But when jobs disappear
and people are left poor, highly concentrated, and hopeless, the way is paved for the
underground economy to become a way of life, an unfogiving way of life organized around a
code of violence and predatory activity. [1999, p. 325]
Moreover, Anderson finds in his ethnographic investigations that, without work, stable
family relations are no longer a credible source of a mans self-esteem. Young men come to
emphasize sexual prowess and conquest, in reference to their male peer group, as the source of
their sense of worth. They congregate on street corners boasting of their exploits. In this way,
they build each other up in their respective eyes by as they boasting of what they have managed
to gain in their interactions with young women: Casual sex with as many women as possible,
impregnating one or more and getting them to have your baby, brings a boy the ultimate in
esteem from his peers and makes him a man. Casual sex, therefore, is fraught with social
significance for the boy who has little or no hope of achieving financial stability and, hence,
cannot see himself taking care of a family. [Anderson 1999, p. 177] This becomes a game, a
game in which girls are lured by older boys who promise love and marriage. Boys want prestige
among their peers, lots of sex, lots of women. Girls want what Anderson calls the Dream. Girls
dream of a husband, of security, of the middle-class life.


Sex often results in pregnancy in this world. Girls may not actively be trying to prevent it.
With the dream of a mate, a girl may be indifferent to the possibility of pregnancy, even if it is
not likely that pregnancy will lead to marriage. A large part of the girls identity is provided by
the baby and the peer groups among the girls in these communities. Becoming a mother can,
Anderson says, be a strong play for authority, maturity, and respect in these communities: The
baby may bring her a certain amount of praise, (in the past) a steady welfare check, and a
measure of independence... As she becomes older and wiser, she can use her (welfare) income to
turn the tables, attracting her original man or other men. [p. 178].
The girls outlook is crucial to describing what her behavior will be. Important factors
include her education, her self-respect, her wisdom, and whether she has had mentoring from
decent role models within decent families, where there may be a husband and wife present
or a strong single mother getting support from her extended family. The parents may be able to
instill some sense of hope, a positive sense of the future, a healthy self-respect. Siblings who
have succeeded may also help to achieve this. Ministers and teachers can play this role by
communicating the expectation that girls do something with their lives.
But where such expectations are not communicated, where some sense of hope or
possibility about the future is not present, the prospect of having a baby outside of marriage, far
from being regarded as a negative, may be seen as a positive. And that can be reinforced not only
by the financial benefits that might come from the state, meager as they are, for support for the
child, but perhaps more important in the world being described, by the status these girls gain
with their peers, by the extent to which they are affirmed in the peer group for having the child.


Positive Discrimination: Group-Based Remedies for Social Exclusion

I turn now to a discussion of normative issues. What is to be done about the inequality that
arises due to exclusion from opportunities for human development associated with race and
ethnicity? Some suggest that special assistance ought to be targeted on individuals in the
excluded groups that, in effect, they should be the beneficiaries of discrimination in their
favor, intended to offset the effects of historically practiced discrimination against them, to their
detriment. This policy is a controversial. Many critics of it object that two wrongs do not make
a right meaning that, while we cannot undo the past exclusionary practices, we ought not to
add to this injustice with present day discrimination, however noble its purpose. I take issue with
this position, and in the discussion that follows try to explain how the practice of this remedial
discrimination can be justified.
Should Color Blindness Be the Goal?

There are two key distinctions to emphasize in the debate about whether distributive goals
intended to reduce group inequality should be pursued through positive discrimination:
instruments are not ends in themselves, and the public use of group-based instruments does not
determine whether citizens embrace group-based identity and consciousness. The color blindness
sought by antipreference crusaders deals with the instrumentality in public action (and,
admittedly, there may be reasons for these instruments to be color blind in some cases). But
equating such a consideration with whether the society is color blind entails a serious conceptual
error. Accordingly, I reserve the term color blind to refer to eschewing the use of race when
implementing a policy and use a different termcolor neutralto indicate unconcern about race
when determining the goals of policy action. For example, if a school admissions or employment


selection rule depends only on traits that are identity-independent, it is a color blind policyfor
it can administered in the absence of racial information.
Color neutrality is morally the more fundamental notion, for it assesses a policy in terms
of its consequences for the members of racial groups. In the United States the so-called War on
Drugs has been color neutral with a vengeance. But has it been just? University of Minnesota
criminologist Michael Tonry, in his book Malign Neglect (1995), suggests not. In fact, Tonry
denounces the blatant color neutrality of U.S. drug policya policy adopted without any
apparent concern for its racial impact.
His point, expressed by means of an analogy, is something that everybody knows:
prostitution takes place by the docks. One does not look for prostitutes on the streets of
wealthy communities, though certainly many of their patrons live there. One looks by the docks.
Likewise, where else but in the bombed-out, abandoned buildings of undersocialized and
disconnected communities of despair, where else but among the brutalized and oppressed, where
else but among the underclass would one expect illicit drug traffic to take place? Thus, if the
government undertakes as a matter of policy to incarcerate everyone found trafficking drugs on
the streets, it is a predictable consequence that the results will be racially disparatemassively
so. Given that this is knowable, should the government decide not to attend to it, Tonry argues, it
will have practiced a form of malign neglect. But in so doing, no color blind norms have been
violated. The policy can be administered without racial information.
This example shows that the key moral issue is often about color neutrality, not color
blindness. The deepest ethical questions bearing on racial group inequality are not about whether
instruments of public action use racial information, but about whether appropriate concern has
been taken for the disparate racial consequences of what may be color blind actions. Yet those


who insist on color neutrality (as a corollary of their commitment to color blindness) avoid
making the most relevant arguments when the question is framed entirely in terms of whether
administrative procedures are color blind. They escape having to explain why society should be
indifferent if one-third of young black men in inner cities are in prison. They forgo the need to
defend a regime in which the hedonism of a privileged middle class engenders a public response
that imposes most of its costs on a vulnerable and weak minority populationbalancing the
cultural budget on the backs of the poor, so to speak. They avoid the need to justify why
historically determined racial stigmas should be reproduced in our enlightened time through
race-neutral public action.
Reasons to Care Explicitly about Group Inequality

RACIAL IDENTITIES MATTER. In 1996 the conservative U.S. federal judge Richard Posner, ruling
in the case of Wittmer v. Peters, upheld the preferential hiring of a black prison guard in an
Illinois boot camp for young offenders. He argued that, with an inmate population that was threequarters black, and given that aversive training methods familiar to Marine enlistees were to be
used at the boot camp, the state might have a compelling and thus constitutionally justifiable
interest in providing for racial diversity in the camps officer corps.
Faced with such examples, supporters of color blindness invariably reply that race here
simply serves as a proxy for some nonracial traitlike the ability to win the trust of black
inmates. But this response is insufficient, for the crux of the matter is not the states use of race
as a proxy for some desirable characteristic in an employee, but rather the tendency of some
citizens to view the world through a racially tinted lens. In the boot camp young inmates are
bullied mercilessly by guards who either have their best interests at heart or do not. If black


youths refuse to believe that this bullying is for some useful purpose when none of the guards are
black, then successful training requires a racially diverse staff. This is true no matter how
sophisticated the prison personnel office may be at discovering, without using race, whether an
applicant truly cares about his prospective charges.

GROUP IDENTITY CONVEYS INFORMATION. Another reason to care about racial inequality
is that race is an important source of information in many situations. Race is an easily observable
trait that is correlated with some hard to observe traits about which employers, lenders, police
officers, and others are concerned. Evidence from employer interviews indicates that both black
and white employers are reluctant to hire young black urban males who exhibit lower-class
behavioral styles. Racial identity is also used as information by police in a variety of ways. Some
evidence indicates that it shapes their law enforcement decisions. Indeed, the dramatic disparity
between races in rates of arrest and incarceration for criminal offenses must be taken into
account when discussing racial differences in the labor market experiences of males, thought the
direction of causality is difficult to untangle.
Racial-statistical discrimination can be quite damaging to both the efficiency of market
allocations and to equity. This is due to the real possibility that the empirically valid statistical
generalizations lying at the heart of such discrimination can become self-fulfilling. There is an
information externality present whenever decisionmakers take actions based on group inferences.
It is not difficult to provide straightforward economic accounts of how this process might work
in a variety of contexts.
Suppose only a few taxi drivers will pick up young black men after a certain hour. Given
that behavior by taxi drivers as a class, it is plausible through a process of adverse selection that
the types of young black men attempting to hail taxis during those hours include a large

portion of potential robbers. This makes it rational to avoid them. But if most drivers willingly
picked up young black men, it might induce a less threatening set of black males to select taxi
transportation after dark, confirming the rationality of the drivers more tolerant behavior.
Or, suppose employers believe that blacks are more likely to be low-effort trainees than
are whites. They will set a lower threshold for blacks on the number of mistakes needed to
trigger dismissal because they will be quicker to infer that black workers have not tried hard
enough to learn the job. But knowing that they are more likely to be fired for making a few
mistakes, more black employees may elect not to exert high effort during training, thus
confirming the employers initial beliefs.
Or, if car dealers believe that black buyers have higher reservation prices than do whites,
dealers will be tougher when bargaining with blacks than with whites. Given this experience of
tough bargaining, a black buyer anticipates less favorable alternative opportunities and higher
search costs than does a white buyer, and so may rationally agree to a higher price. This behavior
confirms the dealers initial presumption that racial identity predicts bargaining power.
Such stories have a ring of truth about them. The key to all these examples is their selfreinforcing nature: they begin with racial beliefs that then bring about their own statistical
confirmation. These examples are not unrelated to historical problems of race as they have
developed in U.S. society. Race is an easily discernable characteristic that has salience in our
culture, making it operate powerfully in many venues because it is common knowledge that
people are taking it into account.

SOCIAL NETWORKS (AGAIN) AFFECT OPPORTUNITIES. Yet another reason to care about group
inequality is that race influences the social networks open to individuals, and these networks
have a major effect on individuals opportunities. Two observations are key to this argument.

First, all societies exhibit significant social segmentation. People make choices about whom to
befriend, whom to marry, where to live, to which schools to send their children, and so on.
Factors like race, ethnicity, social class, and religious affiliation influence these choices of
Second, the processes through which individuals develop their productive capacities are
shaped by custom, convention, and social norms and are not fully responsive to market forces or
reflective of peoples innate abilities. Networks of social affiliation are usually not the result of
calculated economic decisions. Nevertheless, they help determine how resources important to the
development of peoples productive capacities are made available to individuals.
One can say that adult workers with a given degree of personal efficacy have been
produced from the inputs of education, parenting skills, acculturation, nutrition, and
socialization to which they were exposed in their formative years. While some of these inputs
can be bought and sold, some of the most crucial factors of production are only available as
by-products of social affiliation. Parenting services are not sold on the market, but accrue from
the social relations between custodial parents and their child. The allocation of parenting services
among a prospective generation of adults is thus the indirect consequence of social activities
undertaken by members of the preceding generation. An adolescents peer group is similarly a
derivative consequence of social networking.
Though this is an artificial way of thinking about human development, the artifice is
usefulbecause it calls attention to the critical role of social and cultural resources in the
production and reproduction of economic inequality. The relevance of such factors, as an
empirical matter, is beyond doubt. The importance of networks, contacts, social background,


family connections, and informal associations has been amply documented by students of social
I can put this somewhat less abstractly. There is one view of society in which we are
atomistic individuals, pursuing our paths to the best of our abilities given the opportunities
available in the marketplace. Some of us work harder, some are luckier, some are more talented
than others, so the outcomes are not equal. But this is a false, or at least incomplete, view of how
society works. The fact is that we are all embedded in a complex web of associations, networks,
and contacts. We live in families, we belong to communities, and we are members of
collectivities of one kind or another. We are influenced by these associations from the day we are
born. Our developmentwhat and who we are and becomeis nourished by these associations.
It is a severe disadvantage to be born to parents who are not interested in your
development. It is a great impediment for a talented youngster to be embedded in a social
network of peers whose values do not affirm the activities the youngster must undertake to
develop that talent. Children do not freely choose their peers. To a significant degree they inherit
these associations as a consequence of where they live, what their parents believe, what social
group they belong to, and so on.
In U.S. society, given our history, racial identity is an important component of the
complex of social characteristics that define the networks in which we live. Opportunity travels
along these networks. We learn about what we can do with our talents from the conversation
over dinner, from the family friend who says your kid should do this, from the business owner
who offers a summer job. These kinds of opportunity-enhancing associations are not just out
there in the marketplace to be purchased by the highest bidder. Nor are they allocated randomly
to create some kind of level playing field. They are, rather, the product of a racially conditioned


social structure. And when they work to systematically hold back a group of people from
participating in a societys venues of human development, that society has failed to achieve
racial justice.
Is Racial Justice a Coherent Idea? Philosophical Considerations

What do I mean by racial justice? Suppose that there are certain norms of social
justicerequiring, for example, that the distribution of opportunities to develop talents affords
some minimal threshold of possibility for all people and gives rise to economic and social
arrangements that avoid unfair and exploitive relationships. If, because of race relations in U.S.
society, members of certain groups are disproportionately excluded from the benefits of
otherwise socially just institutions, if they do not have the chance to achieve their full human
potential, if they are stigmatized and do not enjoy the dignity and social standing presumptively
extended to othersif, in other words, welfare rolls are oversubscribed by blacks, if the places of
hopelessness and despair in society are occupied predominantly by blacks, if one can put a color
on urban despairthen these social arrangements violate the standards of racial justice.
Kids develop from infancy into adulthood in a situated process of interaction with those
around them. The situations and the opportunities for interaction are defined to some degree by
racial identity. Consider the racial geography of U.S. cities. Where do people live? With whom
do they come into contact? Continue through a more psychological consideration of how
individual identities are formed. Who are kids heroes? What do they take to be worthy projects?
And so on. Peoples inclinations, when acting on their own account, should be included in a
consideration of whether a regime is racially just. Because when social processes encourage the


development of self-destructive behavior among a (racial) group of people, questions of (racial)

justice necessarily arise.
This is not to say that individuals have no responsibility for the bad choices they make.
Rather, it is to recognize a deep dilemmaone that does not leave any good choices. Confronted
with someone who behaves self-destructively or violently toward others, we must hold such a
person accountable; the acts are judgable. But when an entire community is overrun with such
people, and they reproduce themselves over time within a society and economy and polity, one
deals with matters of justice. And when those structures are substantially based on race, one
deals with matters of racial justice.
So now we have a harder problem. If we tell a ghetto-dwelling kid youre a victim of the
dynamics of history, which is why you are toting around an automatic weapon, not only do we
serve ourselves poorly, we also patronize that kid and deny his humanity. But if we are not
cognizant of the history and the ongoing social structures that produce such people, we have
blinded ourselves to matters relevant to a consideration of social justice. This is a dilemma; it is
hard to know how to act morally in such a circumstance.
Here is a youngster to whom one says, Why dont you marry the girl you got pregnant?
Why dont you work in a fast-food restaurant instead of standing on the street corner hustling?
Why dont you go to community college and learn how to run one of the machines in the
hospital? And his answer is not, I have done my sums and the course you suggest simply does
not pay. Rather, his answer is, Who, me? He cannot see himself thus. When the young man
answers in this way, have we heard an individual speaking? Or have we heard a call from a
corner, a margin, of societyfrom a social space that can only be understood if seen in racial
terms? And if we refuse to heed this call, can we possibly be pursuing social justice? I think not.


Consider two 12-year-olds. One has grown up in an affluent, suburban, two-parent family
with wholesome neighbors, attending good schools. The others circumstances were less
felicitous. When it comes time to allocate state-funded opportunities for the intellectual
development of these two youngsters, need we pretend that they come with numbers of their
foreheadssay, 97 versus 89such that the kid with the higher number merits the greater
developmental opportunity?
Under my conception of racial justice, such a pretense would be unacceptable. I am
almost moved to say that children do not have meritthough that is only a rough formulation of
the relevant moral claim. Children are childrena reflection in large measure of things that lie
outside themselves. This is really a shorthand formulation of a more sophisticated argument
about the extent to which the application of meritorious criteria early in personal development
reifies and locks in structures exogenous to the individuals in question. If such an application of
meritocratic principle is defended in the name of individualism, when in fact it is a projection
onto individuals of larger social structures, then one has made an ethical error.
My concern for racial justice turns on the fact that inalienable, nonmarketed social and
cultural resources, made available to people partly on the basis of their racial identities, are
critical in the production and reproduction of economic inequality. In this context it is crucial to
realize that, contrary to the libertarians view, even the values, attitudes, and beliefs held by an
individualof central importance for attaining success in lifeare shaped by the cultural milieu
in which that person develops. Whom one knows affects what one comes to believe, and in that
way influences what one can do with ones God-given talents. Do we as a society have any
responsibility for the debilitating, even pathological cultural milieus that exist among the socially
marginalized in our midst? This is an important component of todays racial inequality. Are


these subcultures of despair mere reflections of the nature of those people, toward whom the
rest of us have no obligations whatsoever? Or are they products of a history in which society as a
whole is implicated?
My claim here is that the social pathology observed in some quarters of U.S. society did
not come out of thin air but is largely a consequence of historical practicesincluding, in the
case of blacks, the practice of racial oppression. Moreover, the ongoing racial segmentation of
U.S. societymost visible in the isolation of urban black pooris an important inequity that
perpetuates the consequences of our troubled racial history. This analysis has an essential ethical
implication: because the creation of a skilled workforce is a social process, the meritocratic
idealthat in a free society individuals should be allowed to rise to the level of their
competenceshould be tempered with an understanding that no one travels that road alone.
We should not embrace the notion that individuals have merit entitling them to be
rewarded without some cognizance of the processes through which that merit is produced.
Theses are social processes with a racial dimension. It should be evident that, notwithstanding
the establishment of laws requiring equal opportunity, historically engendered economic
differences between racial groups could persist into the indefinite futureand not, as some have
argued, perniciously, because of the genetic inferiority of blacks. Thus the pronounced racial
disparities in U.S. cities are at least partly the product of an unjust history, propagated across
generations by segmented social structures of our race-conscious society. This is what I mean by
the problem of racial injustice.
For this reason I would argue that, as a matter of social ethics and social science, there
should be collective public effort to mitigate the economic marginality of blacks who languish in
U.S. ghettos. That is, public goals should not be formulated in color neutral termseven if the


instruments adopted for pursuing those goals are themselves color blind. Prevailing social
affiliations, including the extent of racial segregation, influence the development of intellectual
and personal skills among young people. As a result patterns of inequalityamong individuals
and between groupsmust embody, to some degree, the social and economic disparities that
existed in the past. To the extent that past disparities reflect overt racial exclusion, the propriety
of the contemporary order is called into question.
This is not an argument for reparations. I am not saying that some individuals are due
something because of what was done to their ancestors. Neither is this a group entitlement
argument, in which racial collectivities are seen as having rights that take precedence over those
of individuals. Indeed, my argument here is entirely consistent with individualism as a core
philosophical premise. I am simply acknowledging the fact that in society, people are not atoms.
Rather, they are situated in systems of mutual affiliation. And in U.S. society these systems are
partly defined by race.
Taking note of these systems and understanding their historical roots leads me to some
recognition of race as a legitimate factor when thinking about social justice. When peoples
development prospects depend on the circumstances of those with whom they are socially
affiliated, and when social affiliation reflects a tendency toward racial segregation, even a
minimal commitment to equality of opportunity for individuals can require a willingness to take
into account racial identity. In the divided society of the United States, given our tragic past, this
implies that public efforts to counter the effects of historical disadvantage among blacks are not
only consistent with but indeed are required by widely embraced, individualistic, democratic


Costs of Racial Preferences

This criticism of color blind absolutism is not meant as an unqualified defense of positive
discrimination in all cases. In certain contexts the costs of using racial preferences will outweigh
the benefits. One reason for questioning the wisdom of affirmative action in certain contexts is
that the widespread use of preferences can logically be expected to erode perceptions of black
competence. This point is often misunderstood, so it is worth spelling out. The argument is not a
speculation about the feelings of people who may or may not be the beneficiaries of affirmative
action. Rather, it turns on the rational, statistical inferences that neutral observers are entitled to
make about the unknown qualifications of persons who may have been preferred, or rejected, in
a selection process.
The main insight is not difficult to grasp. Let there be two racial groups, A and B, and
suppose that As are advantaged while Bs are to be aided through affirmative action. Let some
employer use a lower threshold of assessed productivity for the hiring of Bs than As. The
preferential hiring policy defines three types of individuals in each of the two racial groups:
marginals, successes, and failures. Marginals are those whose hiring status is altered by
the policyeither As not hired who otherwise would have been, or Bs hired who otherwise
would not have been. Successes are those who would be hired with or without the policy, and
failures are those who would be passed over with or without the preferential policy. Let us
consider how an outsider who can observe the hiring decision, but not the employers
productivity assessment, would estimate the productivity of those subject to this hiring process.
Note that a lower hiring threshold for Bs causes the outside market to reduce its estimate
of the productivity of Bs who are successes since, on average, less is required to achieve that
status. In addition, Bs who are failures, seen to have been passed over despite a lower hiring


threshold, are thereby revealed as especially unproductive. On the other hand, a hiring process
favoring Bs must enhance the reputations of As who are failures, as seen by outsiders, since
they may have been artificially held back. And As who are successes, hired despite being
disfavored in selection, have thereby been shown to be especially productive.
We have thus reached the result that, among Bs, only marginals gain from the
establishment of a preferential hiring program. Moreover, among As only marginals are harmed
by the program. In practical terms, since marginals are typically a minority of all workers, the
outside reputations of most Bs will be lowered, and that of most As enhanced, by preferential
hiring. The inferential logic that leads to this arresting conclusion is particularly insidious,
because it can legitimize otherwise indefensible negative stereotypes about Bs.
Another reason to be skeptical about affirmative action is that it can undercut the
incentives for Bs to develop their competitive abilities. For instance, preferential treatment can
lead to the patronization of B workers and students. By patronization I mean the setting of lower
standards of expected accomplishment for Bs than for As because of the belief that Bs are not
as capable of meeting a higher common standard. Coate and Loury (1993b) show how this kind
of behavior can be based on a self-fulfilling prophesy. That is, observed performance among Bs
may be lower precisely because Bs are being patronized, a policy that is undertaken because of
the need for an employer or admissions officer to meet affirmative action guidelines.
Furthermore, consider a workplace in which a supervisor operating under some
affirmative action guidelines must recommend subordinate workers for promotion. Suppose
further that the supervisor is keen to promote Bs wherever possible, and monitors performance
and bases recommendations on these observations. Pressure to promote Bs might lead the
supervisor to deemphasize deficiencies in the performance of B subordinates, recommending


them for promotion when he would not have done so for As. But such behavior could
undermine the ability of B workers to identify and correct their deficiencies. They are denied
honest feedback from their supervisor and encouraged to think that one can get ahead without
attaining the same degree of proficiency as As.
Alternatively, consider a population of students applying to professional schools. The
schools, due to affirmative action concerns, are eager to admit a certain percentage of Bs. They
believe that to do so they must accept B applicants with test scores and grades below those of
some As whom they reject. If most schools follow this policy, the message being sent to B
students is that the performance needed to gain admission is lower than that which A students
know they must attain. If B and A students are, at least to some extent, responsive to these
different expectations, they might achieve grades and test scores reflective of the expectation
gap. In this way the schools belief that different admissions standards are necessary becomes a
self-fulfilling prophecy.
Developmental Affirmative Action

The common theme in these two examples is that the desire to see greater B representation is
pursued by using different criteria to promote or admit B and A candidates. But the use of
different criteria reduces the incentives for Bs to develop needed skills. This argument does not
presume that Bs are less capable than As. It is based on the fact that an individuals need to use
his or her abilities is undermined when that individual is patronized by an employer or an
admissions committee.
This problem could be avoided if, instead of using different selection criteria, employers
and schools sought to achieve their desired level of B participation through a concerted effort to


enhance performance, while maintaining common standards of evaluation. Call it

developmental as opposed to preferential affirmative action. Such a targeted effort as
performance enhancement among Bs is definitely not color blind behavior. It presumes a direct
concern about group inequality and involves allocating benefits on the basis of group identity.
What distinguishes it from preferential hiring or admissions, though, is that it takes seriously the
fact of differential performance and seeks to reverse it directly, rather than trying to hide from
that fact by setting different expectations for the performance of Bs.
For example, in the U.S. context, given that black students are far scarcer than white and
Asian students in math and science, encouraging their entry into these fields without lowering
standardsthrough summer workshops, support for curriculum development at historically
black colleges, or the financing of research assistantships for promising graduate
studentswould be consistent with my distinction between preferential and developmental
affirmative action. Also consistent would be the provision of management assistance to new
black-owned businesses, which would then be expected to bid competitively for government
contracts, or the provisional admission of black students to a state university, conditional on their
raising their academic scores to competitive levels after a year or two of study at a local
community college. The key is that the racially targeted assistance be short-lived and preparatory
to the entry of its recipients into an arena of competition where they would be assessed in the
same way as everyone else.

Akerlof, George. 1997. Social Distance and Social Decisions. Econometrica 65 (5): 100528.


Akerlof, George, and Rachel Kranton. 1998. Economics and Identity. Paper presented at an
Institute on Race and Social Division workshop, Boston University, January, Boston,
Anderson, Elijah. 1990. Streetwise: Race, Class, and Change in an Urban Community. Chicago,
Ill.: University of Chicago Press.
. 1999. Code of the Streets. New York: W.W. Norton and Co.
Appasamy, Paul, and S. Guhan, R. Hema, M. Majumdar, and A. Vaidyanathan. 1996. Social
Exclusion from a Welfare Rights Perspective in India.. International Institute for Labour
Studies Research Series 106. International Labour Organization, Geneva.
Applebaum, Arthur Isak. 1996.Racial Generalization, Police Discretion and Bayesian
Contractualism. In John Kleinig, ed., Handled with Discretion: Ethical Issues in Police
Decision Making. Lanham, Md.: Rowman & Littlefield.
Arrow, Kenneth J. 1972. Models of Job Discrimination. In Anthony H. Pascal, ed., Racial
Discrimination in Economic Life. Lexington, Mass.: D.C. Heath.
Becker, Gary S. 1957. The Economics of Discrimination. Chicago: University of Chicago Press.
Bhalla, Ajit, and Frederic Lapeyre. 1997. Social Exclusion: Towards an Analytical and
Operational Framework. Development and Change 28 (3): 41333.
Burki, Shahid Javed, Sri-Ram Aiyer, and Rudolf Hommes, eds. 1998. Annual World Bank
Conference on Development in Latin America and the Caribbean 1996: Poverty and
Inequality: Proceedings of a Conference Held in Bogota, Colombia. Washington, D.C.:
World Bank.


Charles, Kerwin. 1997. Diversity in Managerial Markets: The Rule of Expertise, Information
Quality and Miscommunication. Unpublished paper, Department of Economics,
University of Michigan.
Coate, Stephen, and Glenn Loury. 1993a.Anti-Discrimination Enforcement and the Problem of
Patronization. American Economic Review Papers and Proceedings 83 (2): 9298.
. 1993b. Will Affirmative-Action Policies Eliminate Negative Stereotypes? American
Economic Review 83 (5): 122040.
Cornell, Bradford, and Ivo Welch. 1996. Culture, Information, and Screening Discrimination.
Journal of Political Economy 104 (3): 54271.
Crane, Jonathan. 1991. The Epidemic Theory of Ghettos and Neighborhood Effects on
Dropping Out and Teenage Childbearing. American Journal of Sociology 96 (5):
Cutler, David, and Edward Glaeser. 1997. Are Ghettos Good or Bad? Quarterly Journal of
Economics 112 (August): 82772.
de Haan, Arjan. 1998. Social Exclusion: An Alternative Concept for the Study of Deprivation?
IDS Bulletin 29 (1): 10-19.
de Haan, Arjan, and Simon Maxwell. 1998. Poverty and Social Exclusion in North and South.
University of Sussex, Poverty Research Unit.
Duclos, Jean-Yves. 1998. Social Evaluation Functions, Economic Isolation and the Suits; Index
of Progressivity. Journal of Public Economics 69 (1): 10321.
Eckstein, Harry. 1984. Civic Inclusion and Its Discontents. Daedalus (Journal of the American
Academy of Arts and Sciences) 113 (4): 107-45.


Evans, Martin. 1998. Behind the Rhetoric: The Institutional Basis of Social Exclusion and
Poverty. IDS Bulletin 29 (1): 4249.
Goffman, Erving. 1959. Presentation of Self in Everyday Life. Garden City, NJ: Doubleday.
.1963. Stigma: Notes on the Management of Spoiled Identity. New York: Simon and
Harriss, John, K.P. Kannan, and Gerry Rodgers. 1990. Urban Labour Market Structure and Job
Access in India: A Study of Coimbatore. Geneva: International Institute for Labour
Havel, Vaclav 1992. The Power of the Powerless, in Open Letters: Selected Writings 19651990. New York: Vintage Books: 125-214
Hayek, F.A. 1994. The Road to Serfdom, Chicago: University of Chicago Press
Holzer, Harry J. 1994. Black Employment Problems: New Evidence, Old Questions. Journal
of Policy Analysis and Management 13 (4): 699722.
Horowitz, Donald. 1985. Ethnic Groups in Conflict. Berkeley, Calif.: University of California
Jargowsky, Paul A. 1997. Poverty and Place: Ghettos, Barrios, and the American City. New
York: Russell Sage Foundation.
Jayaraman, R. 1981. Caste and Class: Dynamics of Inequality in Indian Society. Delhi:
Hindustan Pub. Corp.
Kuhn, Thomas. 1962. The Structure of Scientific Revolutions. Chicago, Ill.: University of
Chicago Press.
Kumcu, M. Ercan. 1989. The Savings Behavior of Migrant Workers: Turkish Workers in W.
Germany. Journal of Development Economics 30 (2): 27386.


Labov, William. 1982. The Social Stratification of English in New York City. Washington, D.C.:
Center for Applied Linguistics.
Lang, Kevin. 1986. A Language Theory of Discrimination. Quarterly Journal of Economics
101 (2): 36382.
Liebow, Elliot. 1967. Tallys Corner. A Study of Negro Streetcorner Men. Boston: Little
Loury, Glenn C. 1977. A Dynamic Theory of Racial Income Differences. In P.A. Wallace and
A. Lamond, eds., Women, Minorities and Employment Discrimination. Lexington, Mass.:
Lexington Books.
.1981. Intergenerational Transfers and the Distribution of Earnings. Econometrica 49
(4): 84367.
. 1987. Why Should We Care about Group Inequality? Social Philosophy and Policy 5
(autumn): 24971.
. 1995. One by One from the Inside Out: Essays and Reviews on Race and Responsibility
in America. New York: The Free Press.
. 1996. The Divided Society and the Democratic Idea. University lecture. Boston
University, Boston, Mass.
. 1997. How to Mend Affirmative Action. The Public Interest 127 (spring): 3343.
. 1998a. An American Tragedy: The Legacy of Slavery Lingers in Our Cities Ghettos.
The Brookings Review 16 (2): 3640.
. 1998b. Discrimination in the Post-Civil Rights Era: Beyond Market Interactions.
Journal of Economic Perspectives 12 (2): 11726.


. 1998c. Human Intelligence and Social Inequality. In Lee Rouner, ed., Is There a
Human Nature? Notre Dame, Ind.: University of Notre Dame Press.
. 1998d. Integrating the Historically Disadvantaged into the World of Work. In M.
Archer and E. Malinvaud, eds., The Right to Work: Towards Full Employment. Vatican
City : Pontificiae Academiae Scientiarum Socialium Acta (Pontifical Academy of Social
. 1999. Conceptual Problems in the Enforcement of Anti-Discrimination Laws. In
Kenneth Arrow, Samuel Bowles, and Steven Durlauf, eds., Meritocracy and Economic
Inequality. Princeton, N.J.: Princeton University Press.
Mandel, Ruth. 1993. Foreigners in the Fatherland: Turkish Immigrant Workers in Germany. In
Camille Guerin-Gonzales and Carl Strikwerda, eds., The Politics of Immigrant Workers:
Labor Activism and Migration in the World Economy since 1830. New York and London:
Holmes and Meier.
Massey, Douglas S., and Nancy Denton. 1993. American Apartheid: Segregation and the Making
of the Underclass. Cambridge, Mass.: Harvard University Press.
Mills, Edwin S., and Luan Send Lubuele. 1997. Inner Cities. Journal of Economic Literature
35 (2): 72756.
Modood, Tariq, Richard Berthoud, Jane Lakey, James Nazroo, Patten Smith, Satnam Virdee, and
Sharon Beishon. 1997. Ethnic Minorities in Britain: Diversity and Disadvantage.
London: Policy Studies Institute.
Neal, Derek A., and William R. Johnson. 1996. The Role of Pre-market Factors in Black-White
Wage Differences. Journal of Political Economy 104 (5): 86995.


Newman, Katherine. 1999. No Shame in My Game: The Working Poor in the Inner City. New
York: Knopf/Russell Sage.
Popper, Karl. 1957. Poverty of Historicism. London: Routledge, Kegan and Paul.
Reid, Donald. 1993. The Politics of Immigrant Workers in 20th Century France. In Camille
Guerin-Gonzales and Carl Strikwerda, eds., The Politics of Immigrant Workers: Labor
Activism and Migration in the World Economy since 1830. New York and London:
Holmes and Meier.
Rodgers, Gerry. 1989.Urban Poverty and the Labour Market: Access to Jobs and Incomes in
Asian and Latin American Cities. International Labour Office, Geneva.
Rodgers, Gerry; Charles Gore, and Jos B. Figueiredo, eds. 1995. Social Exclusion: Rhetoric,
Reality, Responses. Geneva: International Institute for Labour Studies.
Roemer, John, 1981. Analytical Foundations of Marxian Economic Theory. Cambridge:
Cambridge University Press
Schelling, Thomas C. 1978. Micromotives and Macrobehavior. New York: W.W. Norton.
Sen, Amartya. 1997. Inequality, Unemployment and Contemporary Europe. International
Labour Review 136 (2): 15572.
Silver, Hilary. 1994. Social Exclusion and Social Solidarity: Three Paradigms. International
Labour Review 133 (56): 53178.
Smith, Yvonne. 1997. The Household, Womens Employment and Social Exclusion. Urban
Studies 34 (8): 115977.
Steele, Claude M. 1992. Race and the Schooling of Black Americans. The Atlantic Monthly
269 (4): 6778.


Sunstein, Cass R. 1996. Social Norms and Social Roles. Columbia Law Review 96 (4):
Thernstrom, Stephan, and Abigail Thernstrom. 1997. America in Black and White: One Nation,
Indivisible. New York: Simon and Schuster.
Thorne, Eva. 1999. The Politics of Policy Compliance: The World Bank and the Social
Dimensions of Development. Ph.D. diss. Massachusetts Institute of Technology,
Department of Political Science, Cambridge, Mass.
Tonry, Michael. 1995. Malign Neglect: Race, Crime, and Punishment in America. New York:
Oxford University Press.
Waldinger, Roger. 1996. Still the Promised City: African-Americans and New Immigrants in
Postindustrial New York. Cambridge, Mass.: Harvard University Press.
Waldorf, Brigitte S., Adrian X. Esparza, and James O. Huff. 1990. Behavioral Model of
International Labor and Nonlabor Migration: The Case of Turkish Movements to West
Germany, 19601986. Environment and Planning 22 (7): 96173.
Wayner, Peter. 1998. Basic Geometry May Explain Segregations Intractability. The New York
Times, CyberTimes section, 22 January.
Whyte, William Foote. 1943. Street Corner Society. The Social Structure of an Italian Slum.
Chicago: University of Chicago Press.
Wilson, William Julius. 1978. The Declining Significance of Race: Blacks and Changing
American Institutions. Chicago, Ill.: University of Chicago Press.
. 1987. The Truly Disadvantaged: The Inner City, the Underclass, and Public Policy.
Chicago, Ill.: University of Chicago Press.


. 1996. When Work Disappears: The World of the New Urban Poor. New York: Alfred A.
Yepez-del-Castillo, Isabel. 1994. A Comparative Approach to Social Exclusion: Lessons from
France and Belgium. International Labour Review 133 (56): 61333.
Yinger, John. 1995. Closed Doors, Opportunities Lost: The Continuing Costs of Housing
Discrimination. New York: Russell Sage Foundation.